COQ | Cost of Quality | Quality-One

Why Implement Cost of Quality (COQ)

Effective use and implementation of Cost of Quality methodology enables an organization to accurately measure the amount of resources being used for Cost of Good Quality and Cost of Poor Quality. With this valuable information the organization can determine where to allocate resources to improve product quality and the bottom line. To further illustrate the value of cost of quality, review the following example. The name of the company has been changed but the content represents actual events and results.

Alpha Company once measured Cost of Quality as the amount of warranty cost versus total sales. This method only examined the Cost of Poor Quality. This data did reveal a problem area in the facility. It was discovered that customer part shortages originating from one work cell were resulting in warranty costs of over $400,000 in one year. A team was formed to investigate and perform Root Cause Analysis (RCA) of the shortages and a plan was developed to redesign the work cell for an estimated cost of $60,000. With management approval, the work cell was redesigned with a revised layout, pick bins, dedicated locations for all the parts, process controls were defined and implemented and several additional improvements were made. The changes reduced tact times and the number of operators required for the process. This provided resources for the addition of quality technicians to regularly audit and maintain the process on all shifts. Within the first year of operation, shortages were reduced by 50% equaling a $200,000 reduction in warranty costs. The project resulted in a positive impact on the bottom line of $140,000 in the first year. Alpha Company has since implemented processes to measure and reduce scrap, improved process controls and introduced new quality metrics throughout the organization. They are now actively measuring and evaluating both the cost of good quality and poor quality.

In the example above, the Cost of Poor Quality (CoPQ) was having a major impact on the bottom line. Through an investment in the Cost of Good Quality (CoGQ), Alpha Company achieved a significant reduction in the Cost of Quality. There are opportunities for improvement in processes at most organizations. It has been estimated that the Cost of Quality usually amounts to between 15-40% of business costs. The goal of implementing Cost of Quality methodology is to maximize product quality while minimizing cost. Cost of Quality methodology provides the detailed information that management needs to accurately evaluate the effectiveness of their quality systems, identify problem areas and opportunities for improvement.